Viacom parts really add up

While the cable TV industry made a big play for parity with broadcast television during this upfront season, the assertion heard on many lips was: "Either way, Mel wins."

The reference here, of course, was to Mel Karmazin, president-chief operating officer of Viacom, who vigorously championed his cable properties-particularly MTV Networks, which for the first time put on a united upfront presentation this year.

Mr. Karmazin indeed can't lose.

At this upfront, it's projected Viacom's CBS will come in second among national broadcasters, taking in $2.2 billion in ad spending, behind General Electric Co.-owned NBC's $2.8 billion, and Viacom's UPN will attract $250 million. Meanwhile, Viacom's cable properties-MTV Networks and BET (Black Entertainment Television)-are expected to take the lion's share of the cable ad dollars.

Last year, Viacom broadcast and cable TV outlets generated about $5.3 billion in revenue, according to TNS Media Intelligence/CMR. On the cable side, Nickelodeon and MTV: Music Television each raked in more than $700 million.

12% bump for ad-supported nets

According to Merrill Lynch & Co. estimates, Viacom cable networks' revenue will rise 11% this year (leaving out commercial-free Showtime, it's 12%) and their growth in earnings before interest, tax, depreciation and amortization is projected at 16%. For 2004, Merrill Lynch estimates 10% revenue growth and 12% EBITDA growth. Among Viacom's cable rivals, ad revenue at Discovery Networks' Discovery Channel and TLC combined was almost $700 million last year. At AOL Time Warner's Turner Communications cable networks, TBS Superstation pulled in $667.5 million and TNT raked in $629.15 million.

Viacom's cable networks "are incredibly well-run; they're smart, entrepreneurial, aggressive and given their share of audience and their targeted demo, it's really hard to get around them," says Jessica Reif Cohen, a media analyst at Merrill Lynch. "They have something no one can match-very targeted demographics and they reach a very broad array of demographics. If anything, the ratings gap between them and their next closest competitor has only gotten wider in the last year."

"I don't think anyone can match them in their breadth and depth of networks," adds Ms. Cohen. "Their combined cumulative share of audience in cable and broadcasting is 26%, which is pretty astounding."

As Ms. Cohen suggests, the secret of Viacom's cable success lies in its limitations. In other words, MTV Networks-including MTV, MTV2, Spike TV, Nickelodeon, Nick at Nite, TV Land, VH1, CMT: Country Music Television, Comedy Central and CTN: College Television Network-targets very specific audiences. Mark Rosenthal, the group's president-chief operating officer, claimed at the MTV upfront that his networks deliver about 10% of all 18-to-34-year-old TV viewers. Also, MTV Networks is a media brand that's easy to identify; it's a network for youth, just as Walt Disney Co.'s ESPN is a network for sports fans.

advertisers seek out nets

"These are highly branded, very popular, targeted networks; these are the ones that advertisers want to go to first," says Mike Drexler, CEO of Optimedia USA, New York, owned by Publicis Groupe and Cordiant Communications Group. "They reach very specific markets, they're high profile, they've got great appeal with their viewers. They are established, well-known brands, and those are the ones that always go first and manage to get the most out of what they are selling. Advertisers create a real association with well-known media brands."

Many of Viacom's cable competitors, on the other hand, show lots of syndicated fare. Cable industry observers note that viewers tune into these stations for the particular shows, not the networks themselves, whereas MTV Networks' viewers specifically go to these channels to see what's on.

"The others have more trouble getting what they want because they are not as focused," says Mr. Drexler. "They're sold more like broadcast and syndication, and people go to cable more for the targeting value and their program environment. And the more broad base you are, the less desirable you are. There are some, however, like Lifetime that are not so definitive in the programming but they have a great brand, the female audience goes there."

THE NICHE ADVANTAGE

"MTV and Nick are niche networks, and niche cable networks do well," says Bill Koenigsberg, president-CEO of Horizon Media, New York. "The networks that target broader audiences-the USAs, TBSes and TNTs of the world-do not get the kind of numbers they're looking for."

A few media buying executives feel Viacom is successful because its executives take the hard-sell approach, and they point to the first MTV Networks upfront as a perfect example of pushing their platform on advertisers.

"Viacom cable properties are very aggressive in terms of their dealings with advertisers-always have been, no matter what the market has been. [It gets] to the point that where they can border on non-cooperation and arrogance," says a top media agency executive who requested anonymity.

Others are not put off by this hard sell.

"They are aggressive with everything they sell. That's not news," says Mr. Drexler. "We have done several multimedia deals with Viacom, and they've worked with us every step of the way. We've worked on very targeted packages with multiple assets, and we've gotten a good deal with virtually everything we've done with them."

"They are tough negotiators, but they're fair," says Joe Uva, CEO of Omnicom Group's OMD, New York, which did one of its first upfront deals with MTV Networks, worth about $250 million, during this upfront (AA, May 19). "They make it very easy to do business with them from the standpoint of accessing the valuable parts of their portfolio."

MTV Networks' Mr. Rosenthal says: "Sometimes it's better to be aggressive. That means we believe in our product, both as creators and sellers."